Author: Editor

Stocks Online for Free – How to Invest
Why invest in stocks online for free, where to find broker, is it really free? Read this post to the end.

By Guy Avtalyon

Technology is making it easier than ever to invest in stocks online for free. However, some places still are charging outrageous fees and commissions to buy stocks and ETFs online when it’s possible to invest in stocks online for free.

Some of the firms that advertise “get started with just $5” can charge you huge fees as a percentage of what you invest. Truth is, we saw some really dishonest financial advisors charging thousands!

We can offer this: everything held equal, the less you pay in fees, the better your returns.

Where to find stocks online for free

Gratefully, we live in the 21st century, and there’s never been a better time to be a small investor.

For 95% of people, that’s fine. For those who want to buy individual stocks, there are still places that allow you to buy stocks online for free.

You have only a few ways to buy stocks online for free.
Thanks to developing technology investing is cheaper. More and more companies are lowering their fees and commissions.
It is possible that they will continue with costs reducing in the coming years due to competition. So, it’s reasonable to expect the cost will drop more.

Fees don’t have to stop you from making wise and lucrative investments.

And now, in today’s mobile world, investing is becoming easier and cheaper than ever. Buying and selling stock investments is not as easy as watching TV series but don’t worry it is not rocket science either.

Today you can enter your stock trades from stockbrokers websites for stock trading apps. It’s very convenient. Just read reviews of the best trading apps and you can find the best selection for you.

Some of them you can find on Traders Paradise’s Wall of fame, like E-trade, TD Ameritrade or Fidelity.

We can suggest you these 3 the best stock trading apps for beginners.
- TD Ameritrade
It is the best for ETF trades. You’ve probably discovered Exchange Traded Funds (ETFs) and you want to cut fees, but you want to maintain a well-diversified portfolio.

ETFs maintain a tax-advantaged structure. They usually offer lower fees than comparable mutual funds. But, most brokerages charge you to buy and sell ETFs. Well, this broker, TD Ameritrade, don’t do so.

TD Ameritrade offers over 100 commission-free ETFs from industry giants iShares, Vanguard, and even more. Because of the diversity of no-load ETF funds, TD Ameritrade is, in Traders Paradise’s opinion, top broker for the people who want to consider tax-loss harvesting on their own.

Moreover, TD Ameritrade also has no minimum and no maintenance fee IRAs.

TD Ameritrade’s mobile app also offers research, information, and portfolio analysis that makes free investing that easier. But we have to say, TD Ameritrade charges for some ETFs, mutual funds, and equity trades. Our suggestion is, filter for no-load ETFs before you buy.

TD Ameritrade has about 4,120 no-fee funds.
- E-trade
This broker offers thousands of mutual funds with no transaction costs.

Mutual funds are the old-school ETF similar principle from the diversification angle. Like ETFs, they hold many individual investments. Hence, investors get some level of diversification in a single fund.

Unlike ETFs, they are priced, they aren’t traded with a commission but with a transaction fee charged by the broker. That’s because they are bought and sold at the end of each trading day.

That fee can be pretty big, sometimes almost $50. But many brokers have a list of no-transaction-fee funds.

Of those that do, E-Trade put up the best showing, with about 4,440 and 4,350, respectively. This is why this broker tops our list of best mutual fund providers. That means you can buy funds on those lists with no charge. Though as with ETFs, investors in these funds will pay expense ratios.
- Fidelity
It is the best for Free ETF Trades & No Minimum IRA. Fidelity allows you to invest for free. This is surprising for most people because most people don’t connect Fidelity with “free”. But, Fidelity offers a range of commission-free ETFs. That allows the majority of investors to build a balanced portfolio.

Fidelity IRAs have no minimum to open, and no account maintenance fees. Let’s say, you could deposit just $5, and invest it for free. That makes this a much better deal compared to some other companies. Furthermore, Fidelity just announced that it now has two 0.00% expense ratio funds. And yes, they are free.

So, you can not only invest commission-free, but these funds don’t charge any management fees. This is truly free investing. But to make it a prime app, it has to have a great app, and Fidelity has it. Fidelity has a great app, so that makes them the top broker.

Fidelity’s app is the easiest to use out of all of the investing apps we’ve tested. All their features work brilliantly together, and they have tones of them. Plus, they are the all-in-one option. With them, you have a full service investing broker. And that is more than just free.

Why invest in stocks online for free

Investing in stocks is supposed to be about building wealth. Well, paying trading commissions can slow your progress..Small fees on stock trades might not seem like a big deal. Most online brokers charge $10 or less for each transaction. But keep in mind that’s per transaction. If you are just starting out as an investor, or if you have only small amounts to invest, even a small fee can take a big bite out of your profits.

But now, you know how you can invest in stocks online for free.
24th January 2019
Buying Stock Without a Broker – Ways to Do

Is it possible to buy stocks without a broker? Why shouldn’t be? Here is how to do that.

By Guy Avtalyon

Buying stock without a broker offers some advantages and disadvantages. Young investors are worried about investing in the stock market.

The financial crisis of 2008 strongly disturbed our formative professional years. We can still feel its specter lingers a decade later. Only 33% of millennials own stock, according to a 2016 Bankrate survey.

The other survey, a 2015 Harvard University survey found that just 14 percent of millennials trust Wall Street.

As any good stockbroker or experienced investor can tell you, you can find bad brokers more often than the good one.

Being “bad brokers” means those who put their own interests above that of their clients. We have a list of bad reputation brokers here on Traders Paradise’s wall of shame.

So, we must consider how to buy stock without a broker.

However, that worst brokers do this in a perfectly legal way, by causing desire and weaknesses to their clients’.

How do they do that?

Here are three main practices that bad stockbrokers practice. They claim to their clients that aiming for stability rather than growth. Wrong!

Usually, they force clients to obtain an income from two different sources, typically in an illicit way. Also, some of them are emphasizing low-risk, low-return, high-fee structured products in client accounts.

That’s why many new investors ask how to buy stock without a broker.

Because of the lack of confidence in brokers, many millennials don’t have the startup cash to fund an IRA or a brokerage account. That typically requires either automatic monthly payments or a minimum investment of around $1,000-2,500, plus commission fees of around $4-7 for every trade.

For those people who want to go down this path to business ownership, one option can be to check out direct investment plans.

But it is with varying degrees of success. Of course, there is no requirement that you have to work with a broker to invest in stocks or particularly equity funds.

Buying stock without a broker offers some advantages and disadvantages.

You will need to measure them based on your personal situation. But our goal is to provide you a good handle on how to invest without a broker.

But it’s up to you to make a decision about whether such an approach is appropriate for you. You have to know your unique circumstances and preferences. Because there is no unique solution for everyone.

Let’s say, you had a broker but you noticed that your broker sometimes uses unfamiliar words and phrases to describe investment concepts. Some of this stockbroker jargon is simply a shorthand that brokers use amongst themselves. They use them to refer to familiar situations without having to go into any detail on the underlying concept.

Your head is going to explode hearing every time some strange words that cause suspicions.

But investing can be simpler if you buy stock without a broker. Just by investing in shares through a company’s direct stock purchase plan.

The first and easiest way to buy stocks without a broker

It is when companies, often blue chips, fund a special type of program. It is called a DSPP or Direct Stock Purchase Plan.

The main goal of these plans originally was designed as a way for businesses to let smaller investors buy ownership directly from the company. In the beginning, they were working through a transfer agent or plan administrator. They still do the same. Most plans allow investors to buy stock without a broker if they agree to either have an amount taken out of their checking or savings account every month for six months. Often $50 is the acceptable minimum. The other way is to make a one-time purchase, which will cost you $250 or $500.

These plans are surely not as comfortable as getting a broker. You can’t just buy and sell a variety of company stocks at any time, for instance. Plus, you won’t have a diverse portfolio if you only own stock from a few companies. Moreover, with some plans, you won’t even escape fees. So, you have to be careful about what you sign up for.

This means trades without commission

But we have to say, direct stock plans are a good way to experiment with the stock market without putting too much money into the game.

Ordinarily, the plan administrators use your cash to buy shares of the company. It can be on the open market or freshly issued from the business itself, on predetermined dates. The average cost of the purchases is weighed out.

Also, they can use some other methodology to equalize the cost among investors. And the direct stock purchase plan statement arrives quarterly. All with a listing of the number of shares you own and dividends you receive.

Some direct stock purchase plans trades without commission. Others charge small fees. Usually $1 or $2 plus a few cents per share, for each purchase. A larger fee, about $15 and a few cents more per share, for a sale. This is a lot lower than what you have to pay at a full-service broker.

Buy stock without a broker by taking advantage of the dividend reinvestment program

In this way, you can add additional shares to your holdings.

This means to enroll in a stock’s dividend reinvestment program or DRIP. DRIPs provide you to take cash dividends, paid out by the company you partially own. And you may plow them back into buying more shares, charging either nominal fees or nothing at all. It depends upon the individual plan.

Have this on your mind. For a typical stock, that’s a lot of transactions over 25 or 50 years on which you aren’t paying commissions. The typical stock may pay out a dividend four times per year. So, count! DRIPs usually come with cash investment options that resemble direct stock purchase plans.

This opportunity means you can regularly have money withdrawn from your account, or send in one-time payments whenever you like.

A lot of long-term investors have become skilled at building wealth through these types of accounts. Buying stock without a broker for years, even decades is a very nice way. You must be heard stories about some housekeeper who left behind $5 million opulence.

They did it just on the way we said above.

You can buy stock without a broker by obtaining a single share through a specialized gifting service

Unfortunately, the financial industry’s decision is to move away from paper stock certificates. And this has become a bit shaky.

But, up until recently, you could use companies that allowed you to buy a single share of stock to get your name on a corporate shareholder list.

Hundreds of companies offer these plans, but each has its own rules for eligibility. It’s normal to be careful about investing in stocks. But some estimates that the average millennial would lose about $3.3 million in retirement savings by avoiding investing completely. Direct stock plans are an easy way to learn the basics and establish a portfolio.

All without spending money, time, and nerves on brokers. Anyway, buying a stock without a broker may be a clever move for investors.

Learn how to trade in the financial academy.

23rd January 2019
The 5 best blue-chip stocks in 2019

2 min read

This article is about picking good stocks by using microeconomics. This means that you look at the stocks of individual companies. Traders Paradise explains how to evaluate a company’s products, services, and other factors so that you can determine whether a company is strong and healthy.

And finally, how to pick 5 best blue-chip stocks.

We want to drive you toward those segments of the stock market that show solid promise for the coming years. That would make your stock portfolio thrive. Putting money into solid companies in thriving industries has been the hallmark of superior stock investing throughout history. It’s no different now. Everything is the same.

Where do you turn to find out about a company’s financial health? When you find the information, you’ll discover how to make sense of that data as well.

We compare buying stock to picking dog. If you look at a group of dogs to choose which ones to buy, you want to make sure that you pick the healthiest ones. With stocks, you also need to pick companies that are healthy.

This article can help you do that. To find 5 best blue-chip stocks.

The 5 best blue-chip stocks as ranked by expected total return.

AT&T (T) is one of the 5 best blue-chip stocks

They are among 5 best blue-chip stocks. AT&T is a global provider of communications and digital entertainment services with 34 years of consecutive increases. They are offering internet access, wireless cellular, and TV services. The company was founded in its current form as a spin-off in 1984. Today, it creates $173 billion in annual revenue, driving a market capitalization of $234 billion. When they reported second-quarter earnings in July 2018, and investors were disappointed. Revenue was down 3% in comparison with the same quarter last year. But the new moment is that earnings-per-share increased by 15%. The company boosted its customers by nearly 4 million. Primarily from prepaid customers in the United States.

DirecTV Now (stylized as DIRECTV NOW, also known simply as DTV Now) is a subscription streaming television service owned by AT&T. As of July 2018, the service has 1.8 million subscribers.

Also, WarnerMedia as part of AT&T has strong growth.

The revenue expanded from $7.3 billion to $7.8 billion year-over-year. All of its segments continue to grow subscriber revenue with special strength coming from HBO.

The WarnerMedia is a significant growth catalyst for AT&T. Second quarter results last year showed that WarnerMedia is growing much more quickly than the rest of AT&T and thus, the acquisition has a bullish development.

AT&T’s competitive advantage is in its enormous participation in the United States and parts of Latin America. The company uses that scale to push wireless, TV, and internet services to millions of consumers in order to expand relationships that are existing. This diversification of AT&T’s legacy businesses and the content library of WarnerMedia is a core advantage AT&T possesses over its rivals.

The dividend is a significant draw for investors as the yield is in excess of 6%. We expect the large yield will be safe for many years to come. Moreover, we are certain that it will continue to grow as well.
AT&T looks attractive from a value and yield perspective.

Owens & Minor (OMI) is among the 5 best blue-chip stocks

Another 5 best blue-chip stocks are Owens & Minor, a healthcare logistics company specializing in contracting packages of healthcare products for hospitals. The company produces $10 billion in annual revenue from more than 200,000 customers. Besides that, the stock has a current market capitalization of just over $1 billion. They had some share price drops in 2017.
The company reported second-quarter earnings in 2018 and results in disappointed investors once again. Revenue grew 8.5% year-over-year as the Byram Healthcare and Halyard Health acquisitions boosted the top line. Adjusted operating income rose 13% but adjusted earnings-per-share fell by 25%.

But the company is solving its issues in a variety of ways. That includes cost rationalization programs and acquisitions. By the way, the acute care setting provides an enormous market Owens & Minor can grow into in the coming years. This should enable the company to continue to grow revenue. Also, it should improve its margin profile over time.

Owens & Minor’s competitive advantages include its established position with hospitals, as well as its recession-resistance.
Owens & Minor sells necessities that are used in high volumes regardless of economic conditions.

So, Traders Paradise sees this as a great advantage.

The stock is yielding in excess of 6% today. We can see modest dividend growth moving forward, but the payout is reasonably well-covered by earnings. Thus, Owens & Minor should be attractive to income investors for this year.

Owens & Minor as producing mid-20% total annual shareholder returns. It is consisting of the high current yield, high single-digit earnings-per-share growth and a double-digit tailwind from a rising valuation. We, therefore, rate Owens & Minor a strong buy for investors seeking growth, value or high current yield. So, they are 5 best blue-chip stocks for 2019.

YOU WOULD LIKE TO READ The Benefits of Blue-Chip Stocks

Cardinal Health (CAH)

Cardinal Health services more than 24,000 pharmacies across the USA and nearly all of its hospitals. In addition, Cardinal is present in more than 60 countries. It employs 50,000 people. And it produces $140 billion in annual revenue. Cardinal Health has a market capitalization of $16 billion. And has 32 years of consecutive increases.

The company’s results in 2018, were mixed. Revenue rose 7%, as did gross profit, but adjusted earnings-per-share fell 23% compared with the same period in 2017.

Cardinal struggled with some negative margin impacts. They announced mail-order customer’s contract, investing in its IT platform. But margins in the company’s generic business continue to fall.

Management is sitting for nothing. However, some of the initiatives it is undertaking to combat these troubles. The management is working on controlling costs as well as successfully integrating the Cordis business. The best side of everything, Cardinal remains committed to returning capital to shareholders over share repurchases and dividends. The dividend yield is 3.7% today. It makes Cardinal a strong choice for investors.

Traders Paradise expects total annual shareholder returns in excess of 20% moving forward. We rate Cardinal as very favorable for long-term investors.

YOU WOULD LIKE TO READ How stocks act in the period of the inflation

Walgreens Boots Alliance (WBA)

They have 42 years of consecutive increases.

Walgreens is the largest retail pharmacy in the United States and Europe. The company is present in 25 countries around the globe, employing almost 400,000 people. They have a wide and deep customer base. The company is servicing more than 200,000 pharmacies, doctors and other healthcare centers annually, along with its more than 13,000 retail stores.

The company reported third-quarter earnings last year and results were strong. Revenue rose 14% and earnings-per-share increased by 15%. But, operating income rose just 5.5%. Walgreens announced a new $10 billion share repurchase program and boosted its dividend by 10%.

The company is already in a dominant position in the United States and Europe, and the Rite Aid acquisition should serve to support that position. Walgreens’ business continues to grow in the developed world. So, Traders Paradise takes a stance, it should hold up well during economic downturns.

The dividend was raised last year, and the yield is now 2.6%.

The payout currently makes up less than one-third of total earnings. Traders Paradise expects continued growth in the dividend for many years to come. Indeed, Walgreens has at least 50 years of consecutive dividend increases.

We forecast very strong total shareholder returns for Walgreens in the coming years to 20% annually. This stock is highly undervalued as well as high single-digit earnings-per-share growth. We rate Walgreens a buy for its combination of growth, value, current yield, and dividend growth. Yes, they are one of the 5 best blue-chip stocks.

Altria Group (MO)

Altria Group has long been a source of high rates of dividends for shareholders. It has boosted its payout for 48 succeeding years.

The share price has fallen significantly in 2018 because of the company’s exposure to cigarettes. It caused some angst among investors. However, new products, such as its heated tobacco and E-Vapor products are driving new growth.

The company’s earnings for the first half of 2018 grew by 24%. Yes, revenues were down slightly. Volume declines in the core cigarette segment continue to be an issue but Altria is busy diversifying away in an attempt to mitigate the potential damage.

The worst year was 2017 with 9.4% of shareholders returns. But, the share price has continued to rise and today stands at 5.5%. Considering the yield has been increased for nearly 50 successive years and that the dividend is covered well by earnings, Traders Paradise sees the dividend as a primary source of total returns moving forward.
Altria’s competitive advantage is in its Marlboro brand cigarettes. Marlboro is near the top of global cigarette sales by brand.

Also, Altria is innovative each year.

The best example is its heated tobacco products.
We have to say, the cigarette volume is declining over time. More and more. So, Altria will need to continue to adapt to a market.

The IQOS and MarkTen products are producing strong growth but they are just a small fraction of total revenue. Altria’s story is still about a cigarette/tobacco.

Traders Paradise is forecasting those mid-teens investors have the unique chance for earnings-per-share growth. And for the mid-single digit dividend yield. We rate Altria’s blue-chip stock worth to buy. They are definitely among the 5 best blue-chip stocks.

The bottom line

The blue chips have the highest value in the poker game. But investing should be far removed from gambling. So, we can say that the term “blue chip” has stuck for a select group of stocks.

Why?

Blue-chip stocks are established, safe, dividend payers. They are often market leaders and tend to have a long history of paying rising dividends. Blue chip stocks tend to remain profitable even during recessions. Think about that!

Risk Disclosure (read carefully!)

22nd January 2019
EUR/USD declined this week

1 min read

The US dollar was one of the strongest currencies during the trading week, mostly due to the optimism about Sino-US trade negotiations. EUR/USD declined even as the US consumer sentiment worsened significantly this month.
But previously, 3 days ago, EUR/USD declined dramatically.

EUR/USD declined as the US consumer sentiment worsened significantly this month. Yet the improving industrial production helped the dollar to gain on the euro. Another reason for the dollar’s strength was the rumor that the United States is considering lifting tariffs on Chinese imports.

Check the foreign exchange market. These are the data for some of the most interesting currency pairs:

AUD/USD

The Trend is bullish in the 1-hour chart. Intraday support is present at 0.7017 price level. So, as long as the price stays above 0.7017 support level, look for buy trades. If bearish candlestick closes below 0.7017 critical support level, then up trend is going to end.

EUR/JPY

The Trend is bullish in the 1-hour chart. Intraday support is present at 123.37 price level. So, as long as the price stays above 123.37 support level, look for buy trades. If bearish candlestick closes below 123.37 critical support level, then up trend is going to end.

EUR/USD

The Trend is bearish in the 1-hour chart. Intraday resistance is present at 1.1484 price level. So, as long as the price stays below 1.1484 resistance level, look for sell trades. If bullish candlestick closes above 1.1484 critical resistance level, then down trend is going to end.

GBP/USD

The Trend is bearish in the 1-hour chart. Intraday resistance is present at 1.2965 price level. So, as long as the price stays below 1.2965 resistance level, look for sell trades. If bullish candlestick closes above 1.2965 critical resistance level, then down trend is going to end.

USD/JPY

The Trend is bullish in the 1-hour chart. Intraday support is present at 107.77 price level. So, as long as the price stays above 107.77 support level, look for buy trades. If bearish candlestick closes below 107.77 critical support level, then up trend is going to end.
Images source: www.earnforex.com

22nd January 2019
Blue-Chip Stocks – Investing in them can be a profitable decision

Blue-chip stocks are popular because they can provide a safer position during economic downturns.

By Guy Avtalyon

Investing in blue-chip stocks may have a reputation for being boring and even a bit outdated. But think again, is it an accident that they are preferred by wealthy investors and rock-solid financial institutions?

Anyone would like a part in businesses they understand and that have a demonstrated record of extreme profitability. The blue chips certainly go along with this description. According to generations of investors, blue-chip stocks have brought money for owners. For the one wise enough to hang on them through good times and bad times, inflation and deflation.

And it is well known. The blue chips stocks are always there. They represent companies that are the core of the global business. The firms with the past, with history. Their products and services are present in nearly every part of our lives.

So, why they are almost entirely ignored by smaller, poorer investors? But, at the same time, the blue-chip stocks have been supreme in the investment portfolios of retirees, non-profit foundations. Also in the portfolios of the top 1 percent of the capitalist class.

This puzzle gives the greatest example, a spectacular glance into the problem of investment management.
Even more, it requires some discussion of behavioral economics.

Blue-chip stocks don’t belong exclusively to the world of retirees and insurance companies. Here’s why.

What are blue-chip stocks?

First of all, the blue-chip stock is a nickname. It describes the common stock of a company that has several quantitative and qualitative characteristics. The term “blue-chip stock” originates from the card game, poker. You know that the highest and most valuable playing chip color in poker is blue.

But there is no general agreement on what, precisely, makes up a blue-chip stock. Hence, there are always individual exceptions to one or more rules. Anyway, blue-chip stocks have several common characteristics.

They are not new, they have history and profitability. They have official data of stable earning power over several decades.
Also, they have long data of continuous dividend payments to stockholders.

They reward shareholders by growing the dividend at a rate equal to or substantially more than the rate of inflation. So, the owner’s income is increasing at least every twelve months even if the shareholder never buys another share.

Blue-chip companies

They have high returns on capital. Also, a solid balance sheet and income statement. Especially when measured by the interest coverage ratio and the geographic and product line diversity of the cash flows.That kind of company repurchases stock when the share price is attractive relative to owner earnings.

They are larger than the classic corporation. Measured by both stock market capitalization and enterprise value, they are among the largest concerns in the world.

It is difficult to unseat market share from them. Sometimes, it comes in the form of a cost advantage achieved through economies of scale, or a franchise value in the mind of the consumer, or ownership of strategically important assets such as choice oil fields. That giant companies issue bonds that are considered investment grade with the best of the best being Triple-A rated.

They are included in the component list of the S&P 500 index, speaking about the USA companies. Many of the blue chips are included in the more selective Dow Jones Industrial Average.

Why wealthy investors prefer blue-chip stocks

Well, one of the reasons wealthy investors prefer blue-chip stocks is because they tend to compound at acceptable rates of return. It is typically between 8% and 12% with dividends reinvested. To say that, holding blue-chip stocks isn’t smooth by any means. They may drop by 50% or more during the period of several years. But over time, the profits perform their extraordinary power.

Presuming that the shareholder paid a reasonable price, it shows up in the total return of the shareholder.
Even when they paid high prices for the ”Nifty Fifty”, 30 years later, investors beat the stock market indices despite several of the firms on the list going bankrupt.

By holding the stock directly, the wealthy can pass them to their children using something known as the stepped-up basis loophole. One of the most incredible, traditional benefits available to reward investors is that all of the deferred capital gains taxes that would have been owed are forgiven.

For example, if the investor, your mother or father at the same time, vested $500,000 worth of blue-chip stocks and held on to them.

Can the blue-chip stocks offer a safer position during economic disasters?

It isn’t a pleasant moment, but, just, for example, they died after they had grown in value to $5,000,000. The successor could arrange that estate in a way that the capital gains that would have been owed on the $4,500,000 unrealized gains ($5,000,000 current value – $500,000 purchase price) are forgiven. The successor would have never paid them. Their children will never have to pay them.

Don’t you think it’s better compounding at a lower rate with a holding you can maintain for the decades? Better than trying to flit in and out from position to position, always chasing after a few extra percentage points? Yes, it is.

Another reason blue-chip stocks are popular is that they offer a safer position during economic disasters. The less experienced and poorer investors don’t think about this too much because they’re almost always trying to get rich too quickly.

They are looking for that one thing that will instantly make them rich. It never ends well. Markets can collapse. You will see your holdings drop by substantial amounts no matter what you own.

Are Blue-chips safe investments?

Don’t let the other people deceive you. One of the reasons blue chips are relatively safe is that dividend-paying stocks tend to fall less in bear markets due to yield support.

Moreover, profitable blue chips sometimes benefit over the long-run from economic disasters. They can buy, or drive out, weakened or bankrupt competitors at attractive prices. The blue-chip stock sets the stage for much better results decades down the line whenever there is a market collapse.

As a conclusion, wealthy and successful investors tend to love blue-chip stocks because the stability means that the passive income is hardly ever in danger. Especially if there is broad diversification in the portfolio. If we ever get to the point that premier blue-chips are cutting dividends en masse across the board, then we will have much bigger things to worry about than the stock market. We’re most likely looking at a civilization disaster.

And if it comes, who will care!

21st January 2019
A Diversified Stock Portfolio – How to create?

Building a diversified stock portfolio is just the beginning but an important part of investing. Here is how to do that.

By Guy Avtalyon

We already mentioned a diversified stock portfolio.

‘Don’t put all your eggs in the same basket’ is probably the most popular saying telling investors about the importance of portfolio diversification. Otherwise, how to spread and reduce risk?

The major advantage of the diversified stock portfolio is its ability to protect your entire portfolio from the volatility associated with different asset classes.

In this article, we look at ways to protect your portfolio by spreading your risk across several different asset classes. Also, some of the many different assets in which you can invest, each with different risk characteristics.

Where is the advantage of the diversified stock portfolio?

The risks attributable to assets cannot be avoided. But when they are managed as part of a diversified portfolio, they can be reduced. Individual assets have a bearing on the overall level of risk you are exposed to.

And the association between the assets has even greater importance. This article considers how a well-constructed investment portfolio should be diversified in a variety of ways. Including overall investment style, a number of individual asset classes, the spread of geographical allocation, and the approach of the fund manager.
The key is to build a diversified stock portfolio with a mix of different investments that make sense for your attitude to risk.

A balanced investment portfolio should hold a mix of equities: stocks, bonds, property, and cash.

Yes, we know. For some of you, the world of investing is complicated. There are mutual funds, exchange-traded funds, target-date funds, a variety of bonds and fixed-income products and then, of course, individual stocks.

These days more and more investors are turning to low-cost ETFs. And necessary, there is the question: is it worth taking the time to build an individual stock portfolio? Yes, it is.

But you have to put in some time and research.

There are various advantages to individual stock ownership.

We believe an individual investor has an advantage over professional investors. But only if you are willing to do the homework necessary to understand the company, management, and the industry underlying each individual stock.

How can you start picking the companies that go into their stock portfolio? Building a solid stock portfolio requires some time, research, and homework.

What is a well-diversified stock portfolio

The diversified stock portfolio should have 10 to 30 individual stocks.

There are 10 stock sectors classified by S&P Dow Jones Indices. These include energy, materials, industrials, consumer discretionary, consumer staples. Also, health care, financials, information technology, telecommunication services, and utilities.

A general rule is to own two to three of the top companies in each main sector.

Stock rankings, screeners, and lists can help individual investors in their quest to find the best stocks for their needs. The rankings can slice and dice stock market members up by returns, market capitalization, dividend yield, price-to-earnings ratio, and other criteria.

Investing in research doesn’t have to be for professional portfolio managers. It is for individual investors too.

How to diversify a portfolio between growth and value stocks?

Or between dividend stocks and those focused on plowing their profits back into their operations.

Diversification is a beautiful thing because it can lower risk without lowering the expected return of a portfolio. This is more or less related to magic by Wall Street standards. Use your research and logic to weed out the stocks that you do not like. Or the companies that have historically lost money due to the competitive pressures.

It will be good for you to understand the behavioral psychology and economics at play behind the companies you hold in your portfolio.

For example, knowing the demand elasticity, or how much a change in price will impact the quantity demanded, can be useful in understanding a company or industry’s prospects.

If the price of gas went up 15% tomorrow, it’s very unlikely there would be a corresponding drop in demand. People need to drive, of course.

How to establish an investment time frame in your diversified stock portfolio?

Since you are going to own individual stocks you need at least three to five years. The longer the better. In order to reduce certain volatility.

Hence, to be successful in individual stock investing, you must do your homework. But more importantly, you need to have a steady temperament and be confident in your own convictions and analyses.

Building your diversified stock portfolio may be just the beginning. But, for the interested and dedicated investor, the payoffs could be well worth the work.

Picking good stocks requires research, time, and the ability to evaluate many parameters for the stock, industry, and overall economy.

And while buying a few dividend stocks should earn you some healthy interest income. Your real dividends will be the long-term gains you rack up as you watch your picks grow.

20th January 2019
How to structure your stock portfolio?

The structure of the investment portfolio depends on many factors but risk appetite is maybe the most influential one.

By Guy Avtalyon

How to structure your stock portfolio? The answer to that question depends on your attitude to risk. Here are three sample portfolios.

What is the best structure of a portfolio?

Laith Khalaf, a senior analyst at UK wealth adviser Hargreaves Lansdown suggests this model of your stock portfolio structure:

Adventurous investor
20%: JPM Emerging Markets
20%: Legal & General International Index
20%: Man GLG Japan CoreAlpha
20%: Threadneedle European Select
20%: Standard Life Global Smaller Companies

Balanced investor:
20%: Invesco Perpetual Tactical Bond
25%: Newton Global Income
10%: Stewart Investors Asia Pacific Leaders
25%: Legal & General UK Index
20%: Baillie Gifford Managed

Conservative investor:
25%: Newton Real Return
20%: Investor Perpetual Tactical Bond
10%: Legal & General Global Inflation-Linked Bond
20%: Threadneedle Equity Income
25%: Troy Trojan

How you will structure your portfolio depends on are you a defensive, middle-of-the-road, or aggressive investor. This will partly determine where you invest.

What is a portfolio structure?

The portfolio construction is the process of organizing your investments as a whole, rather than piecemeal.

How can you have the best chance of constructing a portfolio that meets your investment goals?

At a broader level, portfolio construction should be about structuring your portfolio in a way that stands the best chance of meeting you have stated investment aims within your acceptable level of risk.

But be careful, well thought out structuring of your assets will have an enormous impact on your long-term wealth creation. Conversely, the wrong structure could cost you in both ongoing charges or unexpected tax liability.

What factors do you have to consider in deciding on the combination of stocks, bonds, and perhaps commodities to use in building up your retirement portfolio?

Let’s say that the further one is from retirement, the more risk one can take. Thus at 30, you might have a portfolio of 70% stocks, and 30% bonds. At 50, the ratio might be half stocks and half bonds and at 70, 70% bonds and 30% stocks.

This model of stock portfolio structure allows for a more predictable and more stable income from bonds. But it does not take into account the characteristics of the individual or the nature of the stocks and bonds. Moreover, not all stocks are equal.

Structure of the stock portfolio based on risk tolerance

Find how the structure of the stock portfolio matches your risk tolerance.

If your stock portfolio at 30 or 50 is loaded with, for example, half small caps with no dividends, mining stocks with low dividends then the need for bonds is higher. Or if the bond portion of a portfolio is loaded with high-yield bonds subordinated debt, the fixed-income portfolio needs to be rebuilt for security.

As we move from working years during which it is possible to raise savings and make up for investment losses into retirement, the need to cut volatility grows. A mixture of short and long government bonds and corporate bonds can’t compete with the potential of small companies’ stocks to rise. But it does have fundamental security.

But you can implement some other model of structuring your portfolio. For example, you can buy stocks from developed and emerging markets around the world. And you can own real estate through a low-fee fund as a part of your portfolio.

If you live in the USA, Treasury inflation-protected securities, or TIPS are a very good choice. Some of these parts will possibly increase and drop and increase again. It will happen at different times and at different rates. So you can rebalance at least once a year to maintain your target allocation in your portfolio.

David Swensen, chief investment officer, Yale University suggests this, take a look at the image below.

How do the fees influence the structure of the stock portfolio

Fees can make terrible damage to your investment returns.

Even if you hold the higher-risk, but also, higher-return asset classes. In case of, for example, stocks, you can expect high but one-digit or low double-digit returns over a long time. In fact, Swensen said you can end up losing more than half of your returns. The math is simple, you’ll have to pay 1% for your financial advisor, the additional costs are mutual funds fees which are approximately 1-2%. Finally, you’ll have to adjust your returns for the percentage of inflation.

The odds, he said, are in favor of index funds. In his opinion, very-low-fee index funds make the most sense for individual investors.

When it comes to investing there is no such thing as one size fits all.

Speaking about how to structure your stock portfolio, your portfolio has to be well-diversified, equity-oriented for long-term investors, and efficient in the sense that it is as good or better than other alternatives.

Portfolio structure depends on how long you want to stay invested

When you’re investing for the long run, for example, 20 or 30 years, you are expected to make more money holding a fairly large part of your portfolio in stocks or some other assets that have a high rate of return. That’s because historically, stocks offer greater returns than safer alternatives over the long term.

But in the short term, stocks tend to be much more volatile. So as you approach retirement age, investment advisers suggest moving more assets to the “safer than stocks” class.

Let’s say the stock market crashes and you need to spend money out of your portfolio as income in retirement. So, you don’t want to lose 20 – 30% of your savings and to sell your stocks at a lower price. If you’re younger and market crash, you can just stay invested and wait for the market to recover.

But it isn’t all about age

How to structure your stock portfolio is also about the appetite for risk. Risk tolerance is different for each investor. Risk-averse investors will prefer to hold a mixture of the stock portfolio and cash. Cash could reduce overall risk. When wealth increases, it could happen a tolerance for risk to increase also. But when you grow older, tolerance for risk could decrease. Each investor needs to find his/her own stock portfolio structure that suits their risk tolerance. That’s the main point.

18th January 2019
Brexit deal, is it to be or not to be?

4 min read

Theresa May, the British PM, looks for a compromise with her political opponents that will deliver a Brexit deal. She is entering the most delicate and dangerous negotiations of the country’s split from the European Union.

On Wednesday night, there was an attempt in Parliament of opposition to oust her government in a vote of no-confidence 24 hours after her agreement with the EU was emphatically rejected by the historical margin for any sitting government of 230 votes.

But May survived and opened talks in an effort to break the deadlock. Now she must return to Parliament to set out her Plan B by Monday.

Point is that the UK has just 10 weeks left before the departure deadline.

According to Bloomberg, “May is prepared to blur her red lines to find a plan that will get through Parliament, according to a person familiar with the matter. That could mean keeping close ties to the EU, an outcome backed by opposition parties.”

On the other side, the European Union demand she radically rethinks the UK’s red lines. The bloc signaled its willingness to delay Britain’s withdrawal for a longer time.

That means, the EU had been preparing to make limited concessions over the much-loathed Irish border backstop to help May convince Parliament to back her deal.

But the after Tuesday night it is changed: European governments now believe a more fundamental shift is needed and the move has to come from the UK side, three diplomats said.

“The government approaches these meetings in a constructive spirit and I urge others to do the same,” May told the House of Commons after winning the confidence vote. “But we must find solutions that are non-negotiable and command sufficient support in this House.”

Economic consequences of Brexit deal

The pound initially rose after the historic vote on the Brexit deal. There were some expectations a cross-party approach would yield a Brexit plan that protects the trading connection with the bloc.

But the Theresa May discovered that the price of her opponents’ cooperation could be too high.

Rival party leaders promptly began to establish their conditions for taking part in talks to rescue May’s Brexit strategy. On the table is the option of delaying Brexit and even staging a second referendum on the membership of the EU.

The leader of the main opposition Labour party, Jeremy Corbyn refused to take part at all in talks about the government’s new Brexit plan.

Corbyn, the Labour leader, said May must rule out a no-deal Brexit as a precondition for discussions. After a spokesman for the prime minister later told reporters she was not doing so, Corbyn’s camp said no deal was “blackmail.”

A “no-deal” Brexit is where the UK would cut all ties with the European Union overnight.

Labour party, Scottish National Party, and Liberal Democrat members of Parliament favor closer trading ties with the EU. More than May has proposed. Labour party, for example, is advocating full, permanent membership of a customs union with the bloc.
That sound as anathema to many pro-Brexit members of May’s Conservative party.

British authorities warn that leaving the EU without a deal could lead to a recession, with the pound falling as much as 25 percent and house prices taking as much as a 30 percent hit. Already, suppliers to manufacturers are stockpiling just in case.

Time is running short, and the prime minister has urgently scheduled calls with EU leaders to discuss the next steps.

It’s unclear how much the EU can help.

The bloc is willing to extend the Article 50 negotiating period beyond the summer. In order to find a deal if necessary, according to some diplomats. But on Wednesday, the EU’s chief Brexit negotiator, Michel Barnier said there’s no way to remove the need for the most contentious part of the agreement, the so-called backstop plan for the Irish border.

According to some diplomats, European governments are willing to delay Britain’s departure well into the second half of the year.

So, there is a chance for Brexit to not happen on the long-ago scheduled date of March 29.

The economic exodus because of Brexit deal

The increasing likelihood of a no-deal split is pushing wealthy Europeans, who have made their homes in the UK, to move out. According to Anthony Ward Thomas, founder of a firm of the same name that specializes in overseas relocation.

He confirmed 296 moves away from Britain in 2018. That is an increase of 82 percent. Favored destinations are Paris, Brussels, Zurich, and Geneva, as well as southern France and Spanish locations such as Majorca. In other words the territories of EU countries.

Popular destinations also include the Channel Islands, which don’t apply capital gains or inheritance taxes. Relocation inquiries increased more than 50 percent in the second half last year compared to the first six months.

Customers are typically wealthy, having at least 5 million pounds ($6.4 million) at their disposal. They are European Union citizens moving with their families. There are some retirees seeking warmer weather but also favoring “more stable” political climate.

It pretty much looks that the people are abandoning the ship because it is sinking.

And the exodus may accelerate after the rejection of Theresa May’s Brexit deal.

You would like to read: What makes the Swedish economy unique and should the world follow its economic model?

Italy has also emerged as a magnet for moves, spurred by Brexit and the introduction of a new tax regime two years ago. This country was previously a focus mainly of the second-home owners. But these days, a new home buyer in Italy is, for example, entrepreneur or hedge-fund manager. They moved their families, bought homes, and started to work remotely.

Financial consequences

The pound drifted on Wednesday and gilts sold off even though the margin of the Prime Minister’s loss was way above the threshold many analysts feared would trigger panic. The prospect of a no-confidence vote in May later that evening has also failed to disrupt assets amid a general assumption she will prevail.

The one soft spot was the FTSE 100 Index of shares, which tends to fall when the currency performs well.

The key to the robust showing from UK assets appears to be in the scale of May’s defeat. A belief is growing among many financial professionals that there’s an increasing chance of a so-called soft-Brexit or even no Brexit at all. Those are outcomes many investors would cheer.

It looks that the chances of a no-deal Brexit are so slim now it’s not even really worth considering anymore. It looks that the resolution will be an even softer version than May’s proposal or a new referendum.

You would like to read Investment prediction for 2019 – Traders Paradise prediction

That’s a view shared by a host of analysts who expected May to survive the no-confidence vote called by the opposition.

The markets offer evidence of a pickup in confidence among traders. The cost of insuring UK banks’ subordinated debt fell, while volatility on pound options has slumped.

So, we can say that Prime Minister Theresa May’s record defeat in Parliament over her Brexit divorce deal caused a curious response from markets: Optimism.

The pound drifted on Wednesday and gilts, which is a traditionally safe investment, sold off even though the margin fell way below the threshold. And many analysts feared it would trigger panic. The prospect of a no-confidence vote in May later that evening has also failed to disrupt asset prices amid a general assumption she will prevail.

Not everyone sees the glass as half full

One undeniable outcome of the defeat of May’s deal is a further delay to the Brexit process and yet more uncertainty for traders. Dean Turner of UBS Global Wealth Management is among those recommending caution.

Fidelity International Leigh Himsworth is also wary. He’s reminding investors that a no-deal Brexit remains the default option. And that the mechanics of any other possibilities are difficult. He recommends investing in liquid assets and hedging against the various outcomes.

Brussels’ chief negotiator, Michel Barnier stated Brexit is at a standstill after the crushing rejection of Theresa May’s deal by MPs but offered to return to the negotiating table if parliament forces her to shift the “red lines”.

So, we will see. Monday is coming very soon.

Risk Disclosure (read carefully!)

17th January 2019
Swedish Economy – HOW SWEDEN CREATED A MODEL ECONOMY

3 min read

photo source Jonathan-Brunkhorst unsplash
Nearly half of millennials say they prefer socialism to capitalism, but what do they mean?

“My policies most closely resemble what we see in the U.K., in Norway, in Finland, in Sweden,” Rep. Alexandria Ocasio-Cortez told “60 Minutes.”

Yet Sweden’s experiment with socialist policies was disastrous, and its economic success in recent decades as a result of market-based reforms.

The Swedish economy continues to outperform other advanced economies.

Sweden is an amazing country. It is the country where Ikea, Skype, Spotify, Ericsson, Mojang (of the Minecraft fame) were founded and the country of the world’s oldest Central bank Sveriges Riksbank.

In the past, the Nordic nation has been criticized over state intervention. But now it tends to be presented as an example of how to optimize market capitalism.

What’s the secret?

Stability through reform

Sweden’s gross domestic product (GDP) per capita is among the highest in the EU. It has low inflation and a healthy banking system. But this has not always been the case. Historically, the Swedish economy suffered from low growth and high inflation, and the Swedish krona was repeatedly devalued.

Also, Sweden was hit by a violent financial crisis in the early 1990s. Banks became unstable. Two were nationalized, unemployment rose sharply, government spending soared, as did national debt.

photo source chuttersnap

The path back to stability and success was not easy for Sweden. But by pursuing inventive and courageous reforms, and sticking to them, Sweden has transformed its economy. They manage to pave the way for robust growth in the face of global economic uncertainty.

The balanced budget

According to the International Monetary Fund, Sweden’s national debt to GDP ratio fell from 80% in 1995 to 41% in 2017. All three leading credit agencies give Sweden an ‘AAA’ rating. That is a rare distinction, even among developed economies.

Since the crisis of the 1990s, successive Swedish governments have succeeded in maintaining control over public spending and continued to do so even in the wake of the 2007–2008 global financial crisis.

How was this achieved?

Sweden reinvented its economic governance with a series of innovative regulations. First, in 1996, a limit for public spending was introduced. This was followed by the addition of the ‘surplus goal’ for the government budget. These measures remain largely intact.

These reforms were met with broad support from across the political spectrum in Sweden, where political consensus is often the norm. These measures help prevent the accumulation of debt, and ensure that the national debt is kept in check.

The Swedish Fiscal Policy Council (Finanspolitiska rådet) was established in 2007. This committee of experts audits the government’s policy decisions regarding public finances. It aims to ensure that they remain consistent with the goals of growth, employment, and long-term financial sustainability.

The Swedish government’s credible management of public finances has meant that Sweden remains among the most fiscally responsible countries in Europe.

While governments with large budget deficits carry out austerity measures by increasing taxes and cutting public spending, Sweden has broadly avoided these difficulties. While Sweden remains a relatively highly taxed economy, the center-right coalition government of 2006–2014 scrapped inheritance tax in 2005 and a wealth tax in 2007.

The dynamic Swedish economy

Today, Sweden has a diverse and highly competitive and successful economy. The World Economic Forum ranks Sweden among the top ten most competitive countries in the world.

Sweden is also one of the easiest countries in the world to do business with, according to the World Bank.

A key feature of the Swedish economy is its openness and liberal approach to trade and doing business. Sweden has traditionally been an export-orientated nation, and typically maintains a trade surplus. The value of goods and services it exports is greater than the value of imports.

In addition to maintaining competitiveness in goods and manufacturing, growth in contemporary service sectors such as information and communications technology (ICT) has been strong in Sweden.

Sweden has produced a number of unicorns, including video game developers King and Mojang, fintech company Klarna, and music streaming service Spotify, and video call platform Skype.

Photo by John Arano on Unsplash

Sweden’s present economic and social prosperity was built on the lessons learned from the financial crisis in the early 1990s.

Governments pursued reforms and fiscal sustainability became institutionalized. Stable economic policies combine with competitiveness, innovation and an open approach to trade to make Sweden a model for economic success.

Cashless economy

Sweden is the most cashless society in the world with less than 1% of the value of all payments made using coins or notes in 2017.

Across the country, cash is now present in less than 20% of transactions in stores – half the number five years ago, according to the Riksbank.

Stockholm metro does not accept cash neither does most public transport. Most retailers only accept card payments and street vendors accept cards too. Even smaller payments are cashless with widespread card acceptance. iZettle – one of the most popular small retail payment processors is actually a homegrown company from Sweden.

Retailers are legally entitled to refuse coins and notes.

About 65% of Sweden’s 1500 odd bank branches no longer handle cash. Further many no longer even have ATMs.
Riksbank figures reveal that the average value of Swedish krona in circulation fell from around 106 billion in 2009 to 65 billion in 2016.

Let’s go back to the beginning of this article.

Ocasio-Cortez, like Senator Bernie Sanders before her, knows not to claim an actual socialist country as an exemplary.

During the primary season of the election of 2016, Sanders said, “I’m not looking at Venezuela. I’m not looking at Cuba. I’m looking at countries like Denmark and Sweden.”

Their opponents have the argument against. According to the latest edition of Economic Freedom in the World, Norway is the 25. a country in the world and Sweden 43. out of 162; while Singapore and Hong Kong first and second.

But, neither AOC or Sanders wanted to say that Nordic countries, even Sweden is the example of a free economy.

This was just a short picture of the Swedish economy.

The bottom line

Sweden and the Swedish economy is an example of how the government has to work for the benefits of citizens.

Sweden maybe is ranked lower than some other prosperous countries. But it isn’t the point. The point is: do citizens have opportunities, does government protects their rights and how they really treat them in regard to the living standards.

Risk Disclosure (read carefully!)

15th January 2019
The best stocks to invest during the inflation

Investing in stocks can be the best move during inflation. What are the best stocks for such an environment?

By Guy Avtalyon

So, stock markets aren’t going away anytime soon. But let see how stocks act in the period of inflation. They remain a driving economic force in every country in the world. Analysts aren’t quite sure what the future holds for the stock market.

We will likely see stock markets continue to merge over the coming years. Some have even thought that we’ll see a single global stock market. This appears to be unlikely. Frankly, stocks are not good short-term protection against rapidly increasing inflation, but bonds are worse. But for long-term investors, stocks can be an excellent hedge against rising prices.

Inflation has been creeping up on the world economy. It isn’t the first time. During the history, we had so many inflations.

Inflation tracks the rise in the price of goods and services, which in turn shrinks the money’s purchasing power. When inflation rises, people can buy fewer goods, input prices go up, and revenues and profits go down. The result is, the economy slows down.

But the good news is that you can make money on the market by investing in stocks. Earnings come even in times of inflation.

How?

Well, the truth is that too much money chasing too few goods is one classic definition of inflation. Many studies have looked at the impact of inflation on stock returns. Most studies conclude that inflation can positively or negatively impact stocks. That depends on the investor’s ability to hedge. Also, it depends on the government’s monetary policy.

The most important is knowing how to invest in that environment.

Should you be concerned about inflation and your investments? If you have a substantial portion of your portfolio in fixed income securities, the answer is a definite yes.

Inflation erodes your purchasing power, and retirees on fixed incomes suffer when they can buy less each passing year. This is why financial advisers caution even retirees to keep some percentage of their assets in the stock market as a hedge against inflation.

The consumers will not hold cash because their value over time decreases with inflation. For investors, this can cause confusion.

High inflation can be good, as it can stimulate some job growth.

What can you do in periods of inflation? You can stay invested and not pay attention to the short-term fluctuations. Sometimes this can be hard.

One common misconception about a buy-and-hold strategy is that holding a stock for 20 years is what will make you money. Long-term investing still requires homework because markets are driven by corporate fundamentals. If you find a company with a strong balance sheet and consistent earnings, the short-term fluctuations won’t affect the long-term value of the company.

In fact, periods of volatility could be a great time to buy if you believe a company is good for the long-term.

Companies that raise their prices in line with inflation tend to fare better than others when the cost of living is increasing.

Energy companies, for example, may perform well in an inflationary environment as they can raise their prices in line with inflation. Infrastructure companies such as those responsible for toll roads, or hospitals, may also do well. They often have long-term government contracts in place with payments linked to inflation, which encourages private-sector investment.

Generally speaking, cash would be the worst asset class to hold in a high inflationary environment. However, stocks would be a better choice. This is because a company’s revenue and earnings should grow at the same time as inflation. Companies usually pass rising costs to the consumer to maintain their profit margin.

The concern of rising inflation has recently surfaced as strong employment numbers have caused fears of wage growth. In January, the average hourly pay, for example, in the US jumped 2.9 percent in a year. This is the largest jump in 8 years.

Companies may increase the prices for goods and services in order to pay for these increased salaries. This element is causing concern for investors. Higher salaries for some can bring a higher cost of living.

So, what can you do, where to invest, which stock to buy in the period of inflations?

Oil Stocks

There is a positive connection between the price of oil and inflation. The consumer price index helps measure inflation in the economy by tracking a basket of goods and services by households. Energy costs in households are part of the consumer price index. When the oil prices increase, it directly affects the energy costs spent by consumers. This leads to an increase in the CPI index and then inflation. Oil stocks always do well in high inflation environments.

Utilities

Utilities are defensive stocks. People will need utilities even in a high inflation environment. When operating costs rise for energy companies, in the final instance the consumers will pay them.

So, the companies will maintain their profit margin. Consumers will have no choice. They have to pay for the newly inflated cost if they want to receive electricity, for example. Demand in utility companies will still be strong even in high inflation periods.

Healthcare as best stocks

Healthcare is also a defensive stock. They are considered safer investments as people will always need healthcare. Even when consumer budgets are poor. During the inflationary period, investors will sell out high-risk stocks. They will prefer to buy into low-risk stocks because these are considered safer. People will always need medicine and medical treatment. They will give priority in spending on healthcare as opposed to less crucial goods and services.

Gold Stocks

When investors notice high inflation in the economy they want to turn to safe-haven investments such as gold stocks.

Gold traditionally is an investment held during the economic instability. High inflation causes investors to want to safeguard their investments by buying gold stocks.

Of course, holding cash in bank accounts is a bad idea in a high inflation environment. Because the purchasing power of cash is eroded by inflation.

Basic goods/consumer staples

For instance, companies with higher energy costs from increased transportation costs or higher operating costs will pass these costs to the consumer. Good and services will become more expensive. Consumers will become more selectable when purchasing goods and services because they have less buying power. But, basic goods or consumer staples will still be in demand in a high inflation environment. Even if the costs increase, people will still buy bread and milk. Even if such companies increase the price of their goods, consumers will need to buy it. Consumers will not buy non-essential goods and services such as a new car or furniture. They will only spend what is necessary. That kind of company is a good opportunity.

During the period of inflation never invest in discretionary stocks.

Material Stocks

Basic materials companies are involved in the exploration, development, and processing of raw materials. Hence, many times target specific resources, such as gold, silver, and crude oil. This sector also includes companies that run refineries and plants to develop refined materials. The dividend yields within this sector are above average in comparison to the wider market.

If you’re looking to invest in dividend-paying basic materials stocks, you may also be interested in dividend-paying basic materials exchange-traded funds (ETFs). These funds offer a diversified dividend payment based on a basket of basic materials stock holdings.

What we want to show is that there is no solution to inflation, but there’s the reason for hope. And for profits and returns of course.

You might find these interesting too:

>>> Cryptocurrencies a Powerful Tool Against Hyperinflation?

>>> Are we in an overpriced market?

>>> How to improve risk management in trading?

>>> How to trade stocks during recession

>>> How to Find a Stock Worth Trading?

14th January 2019